Merger Spawns Powerhouse

Although Donaldson, Lufkin & Jenrette and Credit Suisse First Boston are currently in the midst of hammering out a plan for how to most efficiently merge each firm's structured finance departments, it already is apparent to investors and dealers alike that the newly formed team created out of the merger will be a powerhouse on the Street.

Mortgage- and asset-backed sources predict that the investment banking arm of the combined teams will have the resources to become, among other things, an exceptionally strong mortgage-backed securities underwriter, probably attaining the number one or number two slots for MBS league tables in the years to come.

Pre-merger, Credit Suisse First Boston ranked No. 2 for U.S. mortgage-backed debt for year-to-date 2000, according to Thomson Financial Securities Data, with $12.24 billion in proceeds. Lehman Brothers held the No. 1 slot, with $15.78 billion in proceeds. However, post-merger, Thomson Financial predicts that the new CSFB/DLJ will capture the No. 1 position, with an estimated $16.47 billion in MBS proceeds.

Both DLJ and CSFB - particularly the latter - have been active underwriters of MBS, sources say, and more importantly, each firm will add its own individual strengths to the new firm and make up for any weaknesses that each firm had as a stand-alone company.

"DLJ has a tremendous whole-loan business, which First Boston didn't have," said an ABS investor. "That will be a big add-on for CSFB. It will be acquiring the No. 1 whole-loan desk on the Street - that is surely a feather in its cap."

"The best thing about this merger for MBS is that the two teams that are combining really complement each other," said an MBS trader who wished to remain anonymous. "First Boston had a big asset-backed group, and DLJ didn't. So that is a good match there. Similarly, First Boston didn't have a whole-loan group, and DLJ has a tremendous group.

"Typically, those two, and commercial mortgage-backed securities, are the three hardest groups to piece together for most firms because of a shortage of talent and a shortage of experienced people. To end up with all three - well that means they will be very well staffed."

The only sector where the two firms are on more equal footing is CMBS, sources said. CSFB made a strong comeback to the commercial mortgage world this year, with a history of strong secondary trading and deals that have done well.

"It will be a much tougher decision to decide how to merge the two CMBS teams together, and they are still working that out," said a CMBS trader.

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